As the electronics distribution industry continues to expand its design offerings, a top-line dilemma also expands. In a sales-driven organization, how do distributors "monetize" engineering services?
There's no question that customers are turning to the channel for design help. Newark/element14 has developed a site where designers can find components, CAD/CAM software, reference designs, and prototyping services. Broadline distributors such as Arrow Electronics Inc. (NYSE: ARW) and Avnet Inc. (NYSE: AVT) host multi-city workshops that give engineers hands-on experience using the suppliers' latest products. Avnet's signature event, X-fest, kicks off today.
"X-fest has traditionally been tied to Xilinx Inc. (Nasdaq: XLNX) new product launches, and we have a long history of aligning the needs of our suppliers with our customers," Tim Barber, senior vice president of global design chain business development at Avnet Electronics Marketing, told us in a phone interview. "One of those opportunities is X-fest."
To prepare for X-fest, Avnet develops reference designs and software solutions that target a variety of vertical applications, such as machine vision, medical, security, motor control, and wireless. Like many other distributors, Avnet invests heavily in engineering talent. But distribution is a sales-driven business, so this type of investment is an expensive proposition for most distributors.
To measure its return on investment, Avnet tracks and measures X-fest's yield in a number of ways. "The thing we focus on is delivering solutions, and since we create those solutions, we can measure the number of technologies we sell to our customers," Barber said. A solution developed around an FPGA requires connectors, passives, and electromechanical components. "Our suppliers also launch new technologies at X-fest, and we are able to see those products in advance and make sure we have them on the shelf when they are launched."
Avnet also tracks the number of development kits it sells. In the semiconductor world, new designs are frequently registered with a supplier or a distributor. Those designs are often attached to a development kit. If a customer buys a kit and Avnet doesn't see a resultant design or order, the company follows up with that customer.
Design activity is also measured through customers. "If we look at X-fest and look at those customers and compare them to non-X-fest customers, we see 15 percent to 25 percent more activity from the customers that did attend," Barber said. "This reinforces the idea that customers want solutions and, particularly within our customer base, they don't have big design units or design firms, so it's likely a customer we touch in those cases will be a long-term customer."
Another developing model for many distributors is software sales. ARM Ltd. (Nasdaq: ARMHY; London: ARM) has been gradually expanding in distribution. In October, ARM and Avnet launched the Embedded Software Store.
"The goal was to simplify the ARM design process, and for companies that don't have a lot of software developers, we provide the tools or handle the licensing," Barber said. Customers may need only one license and 10 devices, or multiple licenses and 100 devices. "Customers can place one purchase order and will be able to achieve total innovation around ARM."
The bottom line for Barber's group is to translate all this engineering assistance into sales. Distributors say that if they can get their foot in the door with a designer, those efforts will pay off later in volume component sales.
"The less time an engineer has to spend on the basic building blocks of a solution, the more time they have to differentiate their products. When we see our customers begin to adopt new technologies, we know they are looking to be the new Cisco or the new Apple," Barber said. "So we help them with the make vs. buy decision."
Hopefully, that buy is made through a distributor.